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JP Morgan Chase Tower (Photo credit: mheisel)

J.P. Morgan is planning a ban on traders’ instant messaging, a sign of the worsening headache that banks face around controlling staff communication.

As traders use myriad communication methods, keeping track of what is said and enforcing proper policy is proving a serious challenge for IT and risk chiefs.

Industry experts tell Forbes that a simple ban on trader instant messages is often the easiest solution for banks. Others say a ban on mobile communication, a common loophole, is also needed, but that determined individuals will always find a way around the controls.

Recent scandals saw traders from various institutions allegedly colluding in instant message rooms and elsewhere to fix the Libor interbank lending rate and foreign exchange rates. Libor underpins over $350 trillion in derivatives, and $5 trillion in currencies are traded daily on the global Forex markets.

The nature of JP Morgan’s ban

This week, the U.K.'s Daily Telegraph newspaper reported that JP Morgan is preparing to ban instant messages among staff. JP Morgan declined to comment, but sources close to the bank have said a ban, likely to be implemented this week, would focus on traders only. Its aim would be to stop instant messaging in multidealer chatrooms, and not ‘point to point’ conversations with clients. Non-trading staff are not expected to be affected.

has already instituted a similar ban, and a number of other institutions such as , and are reportedly considering similar steps. The bans are not a response to any ‘smoking gun’ but more to a growing alarm around mistaken or misinterpreted off-the-cuff trader comments, banking sources claim.

The CIO dilemma

Chief information officers and chief risk officers in the industry are now facing a dilemma: whether to stop instant messages completely, or allow them but enforce strict policies. In the US, UK and elsewhere, banks can be forced to provide a record of all instant messages and exactly what was said, if the regulator requires. The messages can also be brought up in court cases.

"The key word here is traders: the bans will be about stopping traders using instant messaging, not stopping all staff from using them," says independent financial industry expert Ralph Silva.